Business columnist

This week possibly hundreds of Qantas pilots will be offered redundancy packages as the airline moves to achieve its goal of reducing staff by 1200 by the end of June and a targeted 5000 cull of employees within three years.

The financial trouble enveloping Qantas has resulted in a major downsizing of the company which has included dropping routes and retiring planes as part of a restructuring plan aimed at cutting a swath through its cost base.

Meanwhile a document leaked to Fairfax Media's 3AW this week concerning Qantas' financial predicament suggests that the company is concerned it could be facing a further downgrade on its already junk-rated debt. Additionally the document suggests the sale of part or all of its Frequent Flyer loyalty program has moved up on the airline's agenda.

The memo, titled ''liquidity challenge'', details how the airline may be forced to sell Frequent Flyers and how to maximise the proceeds and ''how much longer can we defer it''.

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It also mentions that a further ratings downgrade could lead to funding being further rationed.

Qantas chief executive Alan Joyce said as recently as last week that asset sales including its loyalty scheme were being considered as part of a program to reduce debt.

Qantas claims it does not believe the document to be internal but it doesn't rule out the possibility and it is not suggesting the document is a fraud. Rather it appears to be a memo of a meeting with potentially outside advisers.

The author of the memo notes that within Qantas there are a ''jigsaw puzzle of issues'' and ponders ''when will management reach a tipping point''.

The memo suggests the company's burden of debt is too great, which is certainly in keeping with the consensus view of the financial analysts from investment banks that closely follow the company.

Joyce has announced already that he wants to knock $2 billion off the net debt levels which stood at around $3.2 billion at June 2013.

It is understood that pilots will be offered one year's pay in return for taking the redundancy deal. However, it is not clear how many will be happy to take the offer.

There are many pilots on Qantas' books who have more than 20 years in the job and probably won't be satisfied with such a deal.

Qantas would presumably need to move to compulsory redundancies to achieve its targets.

Its highly regarded pilots are among Qantas' most valuable assets, given the degree of training that has been invested in them. They have clearly contributed to its stellar safety record. But the reality is that in retiring many planes there is a surplus of pilots.

Qantas has been managing excess pilots to date by asking them to whittle down their leave and long service entitlements or take leave without pay. But this has been delaying their stay of execution.

Reducing pilot numbers is an unfortunate consequence of losing market share as a result of being unable to compete with foreign carriers and, plenty would argue, the mistakes of management.

Qantas reported a loss of $250 million for the half to December and could easily match this number in the current six months to June.

It has had its debt credit rating downgraded and only this week raised $300 million in relatively expensive junk bonds to replace some debt that was due for earlier repayment.

While Qantas denies it has a liquidity problem, the reality is that the redundancy costs are an expensive drain on cash and this may curtail its ability to offer redundancy to all the excess pilots initially.

In response to the leaked document, Qantas responded on Tuesday, ''the concept of a liquidity challenge'' seems to ignore the $2.4 billion Qantas has in the bank, not to mention a large number of unencumbered assets (ranging from airport terminals to aircraft).

''We have an obligation to keep the market up to date with our position, and we did that as recently as last Thursday.

''No decision has been made on Frequent Flyer, so any suggestion to the contrary is simply wrong.''

A recent March investment note from JPMorgan which analysed Qantas' high cost base sums the situation up.

It notes that ''when the trading environment is robust with passenger revenue yield growth and strong load factors, the cost structure within QAN could be addressed 'later' but in the current environment with excess seat capacity both domestically and on its key international routes and yields under pressure, the uncompetitive cost structure of QAN really becomes apparent and a focus.

''Until QAN is able to tackle its costs, it is likely to find it increasingly difficult to achieve satisfactory returns.''